UC-NRLF 


B    3    31M    7flt, 


Copyright-1920  by  Kriebel  &  Co. 


The 

Principles  of 

Profitable  Investing 


KRIEBEL  &  CO. 

137  South  La  Salle  Street 
CHICAGO 


fiG-ys-. 
k  7 


CHAPTER  I 


THE  PRINCIPLES  OF  INVESTING 

MONEY  CAN  BE  MADE  in  two  ways.  It  can  be 
earned  by  labor.  It  can  be  multiplied  by  investment. 
Every  man  can  be  a  successful  investor,  if  he  adopts 
the  same  plan  as  used  by  people  of  considerable  means.  This 
plan  eliminates  all  chance  or  speculation,  and  is  a  step  in  the 
right  direction  to  financial  independence.  The  degree  of 
success,  of  course,  depends  on  carrying  out  the  plan  without 
stop  or  hesitation. 

INVESTING  A  BUSINESS 

People  are  coming  to  realize  more  and  more  that  investing 
money  is  a  business  in  itself.  It  calls  for  a  special  knowledge 
of  the  investment  field — a  knowledge  of  the  particular  invest- 
ment under  consideration.  This  in  turn  calls  for  an  analysis 
of  the  corporation  back  of  the  security;  its  present  physical 
and  financial  condition;  the  volume  of  business  done;  the 
demand  for  its  product,  market  conditions,  etc. 

From  this  it  should  be  seen  that  unstudied  or  guesswork 
methods  in  buying  securities  are  dangerous.  The  investor  is 
buying  more  or  less  blindly,  and  the  security  of  the  principal 
is  in  jeopardy. 

*  ~  Page  Five 


THE    PRINCIPLES    OF    PROFITABLE    INVESTING 

The  investor  is  a  buyer.  Securities  are  a  commodity,  the 
same  as  merchandise.  If  the  investor's  knowledge,  or  the 
advice  upon  which  he  acts,  is  sound,  he  buys  to  advantage ;  if 
it  is  meagre,  faulty,  or  if  he  is  illy  advised,  he  is  apt  to  buy 
unwisely. 

EFFICIENCY  IN  INVESTING 

Every  intelligent  man  knows  what  "efficiency"  means. 
He  knows  that  efficiency  is  the  application,  without  stint  or 
reserve,  of  competent  knowledge ;  that  to  be  efficient  is  to  be 
able  to  do  the  thing  in  hand  well,  carefully,  intelligently, 
properly;  to  produce  the  best  possible  results. 

Neglect  or  failure  to  apply  efficient  safeguards  in  the  con- 
duct of  man's  personal  finances  is  almost  certain  to  result  in 
disaster.  If  alluring  promises  of  wealth  from  a  small  sum  in 
some  new  and  unproven  business  cause  him  to  invest,  he  is 
most  likely  to  regret  his  poor  judgment — when  it  is  too  late; 
just  as  countless  others,  whom,  in  the  aggregate,  have  lost 
vast  sums  of  money  in  the  same  manner. 

The  realization  that  competent  knowledge  in  financial 
matters  is  essential  for  safety  and  to  insure  a  maximum  return 
on  the  investment,  is  growing  clearer  every  day.  Every  man 
knows  that  money  makes  money;  that  it  can  be  made  to 
increase  rapidly  only  when  properly  invested. 

This  thought,  then,  should  always  be  uppermost  whenever 
investing  is  seriously  considered. 


Page  Si* 


CHAPTER  II 

THE  LURE  OF  THE  SMALL  INVESTOR 

TO  THE  SMALL  INVESTOR,  the  temptation  to  ignore 
the  safety  first  principle  is  strong.     Hence,  the  great 
numbers  of  investors  who  lose  their  money  on  what  they 
were  led  to  believe  was  "a  good  thing/'  but  which  in  reality 
was  just  plain  gambling,  with  the  odds,  in  most  cases,  hope- 
lessly against  them. 

HOW   MONEY   IS    LOST 

The  desire  to  "make  money  hand  over  fist,"  is  as  natural 
as  the  act  of  breathing.  People  are  easily  influenced  by 
stories  of  great  wealth  from  small  investments.  The  wily 
stock-promoter  knows  the  psychology  of  the  human  mind. 
Therefore,  when  a  new  "corporation"  is  to  be  "financed"  that 
will  "loosen  the  flood-gates  of  wealth,"  records  of  Standard 
Oil,  International  Mercantile  Marine,  American  Telephone 
and  Telegraph,  and  a  host  of  other  companies  that  have  made 
fortunes  for  their  stockholders,  are  tabulated,  with  the  usual 
glittering  comments  on  their  earnings  on  the  original  invest- 
ment. 

The  reader  is  now  interested.  Then  follows  a  glowing  tale 
of  "tremendous  possibilities"  of  the  stock  the  intended  victim 
is  allowed  to  buy  on  a  "ground  floor"  basis,  or  some  other 
equally  alluring  term  that  will  separate  him  from  his  money. 

Page  Seven 


THE    PRINCIPLES    OF    PROFITABLE    INVESTING 

"BUYING  NOTHING  FOR  something" 

As  long  as  society  exists  and  men  have  to  struggle  for  a 
living,  fraud  will  continue  to  be  practised.  Glittering  propo- 
sitions will  continue  to  lure  the  savings  of  those  who  want  to 
grow  rich  over  night.  And  because  of  this  unrelenting 
attempt  to  sell  nothing  for  something,  it  is  necessary  that  the 
prospective  investor  be  on  his  guard  all  the  time. 

The  Post  Office  Department  is  doing  a  good  work  in 
closing  up  dishonest  concerns  who  are  swindling  the  public, 
yet  the  government  is  unable  to  reach  many  of  them. 

LEGISLATED    PROTECTION 

Several  states  have  legislated  to  protect  the  savings  of  their 
citizens.  They  have  enacted  "blue  sky"  laws  which  make  it 
more  or  less  difficult  to  sell  questionable  stock.  Yet,  in  spite 
of  all  this,  worthless  securities  continue  to  be  bought.  The 
gambling  instinct  is  strong.  Men  are  willing  to  "take  a 
chance"  with  the  elusive  hope  of  making  a  lucky  strike. 

BUYING   ON    MARGINS 

Too  frequently  it  happens  that  a  type  of  securities'  houses 
unduly  tempt,  and  in  fact,  encourage,  people  to  buy  on 
margins.  They  constantly  flaunt  before  the  prospective  buyer 
spectacular  profits  that  have  been  made  on  certain  stocks, 
with  the  subtle  inference  that  the  reader,  also,  can  do  likewise. 

The  injustice  of  this  sort  of  publicity  is  great;  its  evil 
influence  is  far-reaching.  It  encourages  hazardous  specula- 
tion— pure  gambling;  and  when  financial  loss  does  not  follow, 

Page  Eight 


THE      PRINCIPLES      OF      PROFITABLE       INVESTING 

it  often  happens  that  the  stock  shows  such  little  activity  (or 
none  at  all)  that  the  investor  becomes  discouraged.  The 
percentage  of  winners  in  this  type  of  gambling  is  very,  very 
small. 

Such  methods  may  swell  the  volume  of  business  for  the 
firm  at  the  expense  of  the  victim,  but  it  does  not  increase  the 
number  of  permanent  customers.  And  after  all,  a  successful 
investment  business  is  measured  by  the  percentage  of  regular 
customers,  rather  than  by  great  financial  gains  from  dissatis- 
fied, disappointed  people. 

THE    INVESTOR'S    PROBLEM 

The  investor's  problem,  then,  is  always  to  obtain  the 
greatest  degree  of  safety  and  largest  earning-power  consistent 
with  sound  business  principles. 

To  him  the  field  of  finance  is  mysterious,  and  he  may 
either  be  ultra  conservative,  and  miss  many  splendid  invest- 
ment-opportunities, or  be  ignorant  of  values  and  conditions 
and  lose  money. 

The  man  of  moderate  means  has  the  same  strong  desire  to 
make  his  surplus  funds  grow  rapidly  as  has  the  man  of  unlim- 
ited means.  Heretofore  he  has  had  only  three  avenues  open 
to  him,  viz. : 

1 — The  bank,  paying  three  or  four  per  cent. 

2 — Buying  stocks  on  margin,  with  the  odds  almost^  ope- 
lessly  against  him. 

3 — Putting  money  in  wildly  exploited  propositions  that 
seldom  ever  get  beyond  the  stock-selling  stage. 

Page  Nine 


THE      PRINCIPLES      OF      PROFITABLE       INVESTING 

The  appeal  to  the  prospective  investor  from  perfectly 
legitimate  sources  is  so  highly  competitive,  and  frequently  so 
complex,  that  comparatively  few  venture  into  this  rich  field. 

Education  of  the  individual  in  matters  of  finance  appears 
to  be  impracticable,  as  a  rule,  for  the  reason  that  this  is  a 
business  in  which  much  statistical  knowledge  must  be  studied. 
Changing  conditions,  intricate  relationship  of  various  securi- 
ties with  each  other,  the  bearing  of  various  productive  channels 
on  market  prices  of  securities,  the  money-market,  and  allied 
conditions,  tend  to  confuse  the  student. 

VALUE  OF  EXPERT  ADVICE 

Hence,  it  is  necessary  to  consult  those  who  actually  know. 
The  investor  must  secure  the  services  of  an  impartial  expert. 
Just  as  a  man  goes  to  a  lawyer  when  in  need  of  legal  advice, 
or  to  an  architect  for  planning  a  building,  so  must  he  look  to 
the  securities'  expert  when  in  the  market  for  investments. 

^EXPERIENCE"    A    POOR   TEACHER 

No  man  can  learn  the  elements  of  investment  by  experi- 
ence, alone;  for  experience,  in  this  highly  specialized  field,  is  a 
costly  teacher.  When  a  man  buys  securities  without  knowing 
their  true  value  and  present  and  prospective  earning-ability, 
it  too  frequently  happens  that  he  loses  a  greater  part  of  his 
original  investment.  No  amount  of  guessing  can  fit  him  to 
buy  intelligently  and  profitably,  for  guesswork  methods  are 
contrary  to  sound  business  principles.  No  man  can  acquire 
knowledge  by  guessing. 

Page  Ten 


CHAPTER  III 


THREE  CLASSES  OF  INVESTORS 

THE  SMALL  INVESTOR  should  consider  himself  a  per- 
manent  investor.     By   this   is   meant   that   he   should 
always  arrange  to  buy  his  securities  outright,  either  for 
cash,  or  on  extended  payments.     Each  security  paid  for  adds 
just  that  much  more  to  his  store  of  wealth;  makes  him  just 
that  much  more  independent. 

Investors  in  listed  securities  are  divided  into  three  classes, 
as  follows: 

THE    GAMBLER 

1 — The  gambler.  He  buys  stocks  on  margins  today  with 
the  idea  of  selling  tomorrow  or  next  week  and  taking  his 
profit  on  a  rising  market.  He  never  actually  owns  the  stock 
he  margins.  If  the  stock  he  buys  on  this  basis  goes  up,  he 
makes  money.  If  it  goes  down,  he  must  put  up  additional 
cash  to  further  margin,  or  protect,  his  purchase. 

Too  often  he  loses  all  he  "invests." 

Should  a  man  "go  short,"  that  is,  sell  on  a  falling  market 
with  the  idea  of  buying  in  at  a  still  lower  price  in  order  to  make 
delivery  on  what  he  has  already  sold,  he  may  guess  wrong, 
and  meet  the  same  fate  as  the  man  who  takes  the  other  end  of 
the  gamble. 

Page  Eleven 


THE      PRINCIPLES      OF      PROFITABLE       INVESTING 
THE    SPECULATOR 

2 — The  speculator.  This  is  the  class  that  buys  stocks  out- 
right with  the  idea  of  selling  them  at  a  profit  a  few  weeks  or 
months  later.  The  degree  of  safety  is  higher  here,  for  these 
people  have  avoided  the  margin  feature.  Investors  in  this 
class  usually  make  a  superficial  study  of  the  stock  market, 
then  try  to  guess  themselves  with  the  "insiders."  Their 
ability  at  guessing  is  the  dangerous  factor.  However,  they 
stand  to  lose  only  the  difference  between  what  they  paid  for 
the  stocks  and  the  price  at  which  they  may  finally  have  to  sell. 
This  is  pure  speculation,  with  the  odds  for  winning  greatly 
against  the  buyer. 

THE    INVESTOR 

3 — The  investor.  This  is  the  man  who  buys  outright,  for 
cash  or  on  deferred  payments.  He  is  the  true  investor.  He 
considers  safety,  earning-power  and  marketability.  He  pur- 
chases high  grade  listed  securities  for  their  interest  or  dividend- 
yield,  and  for  the  purpose  of  selling  at  some  distant  future  on 
a  rising  market.  Investments  of  this  nature  have  a  two-fold 
earning  capacity — interest  or  dividend  yield  and  increased 
value  of  the  securities.  This  is  the  safe  way  to  invest;  and  it 
is  such  investments  that  make  for  financial  independence. 

Man  profits  by  the  mistakes  of  others.  If  he  is  wise  and 
judicious,  he  avoids  the  paths  he  knows  to  be  dangerous. 
The  prudent  investor  knows  that  the  greater  the  profit  on  his 
investment,  the  greater  is  the  danger  of  loss  to  the  principal. 

Page  Twelve 


CHAPTER  IV 

VARIOUS  METHODS  OF  INVESTING 

A  GAMBLER  IS  always  willing  to  take  great  risks.  He 
is  ready  to  "take  a  chance."  Fortunes  are  always 
within  his  grasp,  only  to  elude  him  at  the  last  moment. 
The  speculator  is  not  so  daring.  He  wants  what  he  thinks  is 
a  reasonably  "sure  thing."  With  him  Fortune  is  more  or  less 
fickle.  The  investor  demands  security  first.  Earning-power 
of  the  investment  comes  next;  following  this  comes  possible 
enhancement  of  value. 

THEORIES    OF    INVESTING 

There  are  three  investment  theories,  each  of  which  has 
many  followers: 

1 — Wide  distribution  of  investment  funds. 

2 — Moderate  distribution  of  investment  funds. 

3 — Placing  all  the  funds  in  securities  of  one  corporation. 

Wide  distribution  more  often  than  not  results  in  actual 
loss  on  the  principal,  because  of  the  natural  tendency  to 
always  find  "something  different"  at  the  expense  of  security. 

Moderate  distribution  undoubtedly  is  the  safest,  for  the 
reason  that  in  a  few  well  selected  investments,  the  losses  that 
might  occur  are  usually  more  than  offset  by  the  gains  in  the 
other  groups. 

Page   Thirteen 


THE      PRINCIPLES      OF      PROFITABLE       INVESTING 

Placing  all  the  funds  in  the  securities  of  one  corporation 
carries  with  it  a  certain  element  of  risk,  unless  the  corporation 
is  old  and  well  established,  does  a  thriving  business,  and 
promptly  meets  all  interest  payments.  Securities  in  such  a 
corporation  naturally  command  a  high  market  price;  there- 
fore, the  earnings  are  proportionately  less. 

Should  the  investor  be  unfortunate  enough  to  invest  his 
funds  in  a  single  corporation  that  later  meets  up  with  financial 
difficulties,  the  loss  may  be  considerable — perhaps  total. 

Therefore,  the  consensus  of  opinion  should  seem  to  indicate 
that  moderate  distribution  is  safest  in  the  long  run. 

ADOPTING   A    SAFE    POLICY 

In  fact,  the  new  investor  will  do  well  to  adopt  the  policy 
of  those  who  invest  large  sums  frequently.  The  experienced 
trader,  the  big  investor,  and  large  corporations,  put  their 
money  in  group  investments,  as  it  combines  market  profit- 
possibilities  of  a  prospective  or  non-dividend-payer,  with  a 
conservative  dividend-paying  stock.  It  is  the  insurance 
policy  of  the  stock  market,  and  a  good  one  for  the  investor  to 
adopt. 

INCREASING    PROFIT-POSSIBILITIES 

By  making  group  investments,  the  investor  is  distributing 
his  risk  according  to  sound  trading  rules.  He  also  stands  the 
best  chance  of  making  a  profit  on  the  market  value  of  his 
securities;  and  at  the  same  time,  insures  a  higher  degree  of 
safety  of  the  principal — in  addition  to  the  earning-capacity 
of  the  securities. 

l'age  Fourteen 


THE      PRINCIPLES      OF      PROFITABLE      INVESTING 
EQUALIZING    VALUES 

Group  investments,  intelligently  carried  out,  equalize  con- 
ditions in  various  parts  of  the  country  that  may  affect  the 
market  price  or  yield  of  securities. 

Some  investments  in  the  group  may  increase  considerably 
in  value  and  earnings,  while  others  may  show  a  decline  both 
in  market  value  and  productive  capacity.  For  this  reason,  it 
should  be  clear  to  the  reader  that  even  under  the  most  adverse 
conditions,  protection  to  principal  is  thus  better  safeguarded, 
and  a  good  rate  of  earnings  on  the  investment  is  assured. 


Page  Fifteen 


CHAPTER  V 


FACTORS  OF  PROFIT  IN  INVESTMENTS 

BEFORE  MAKING  an  investment,  it  is  well  to  know 
beforehand  that  your  investment  is  a  judicious  one. 
Your  knowledge  of  this  should  be  complete.     Facts  and 
figures  should  be  the  sole  guide.     And  for  this  reason,  the 
factors  which  should  receive  the  most  rigid  investigation  and 
consideration  are: 

1 — Security 

2 — Income 

3 — Market  profit-possibility 

Rarely  all  three  predominate  in  one  stock.  Because  of 
this  fact,  then,  it  is  advisable  to  buy  two  or  more  securities 
in  different  channels  of  industry  in  order  to  attain  this  com- 
bination. 

INSURING    VALUES 

By  selecting  securities  in  different  kinds  of  industry,  and 
in  different  parts  of  the  country,  the  investor  can  better  pro- 
tect his  principal  against  adverse  conditions  that  might 
develop  in  one  particular  field,  and  which  would  impair  the 
market  value  of  his  security. 

Page  Sixteen 


THE      PRINCIPLES      OF      PROFITABLE       INVESTING 
"BALANCING"   THE    INVESTMENT 

Another  important  service  rendered  by  the  securities' 
expert,  is  to  balance  the  dividend-payers  against  the  non- 
dividend-payers,  but  which  are  good  prospects  for  becoming 
such.  The  wisdom  of  this  course  is  apparent,  for  when  the 
latter  become  dividend-payers,  their  market  value  will  have 
increased  considerably;  and  this  increase  in  market  value,  in 
itself,  almost  in  every  instance  is  considerably  more  than  a 
dividend-yield  would  have  amounted  to. 

A  very  important  thing  for  the  new  investor  to  bear  in 
mind  is  that  the  natural  increase  in  our  country's  vast  re- 
sources should  easily  overcome  any  depression  in  value  due  to 
unforeseen  occurrences. 

An  analysis  of  the  group-investment  idea  should  be  con- 
vincing proof  that  herein  lie  vast  opportunities  for  profit 
through  the  market  advance  of  the  holdings,  as  well  as  the 
dividend-yield  of  the  investment. 

EXACT    KNOWLEDGE    NECESSARY 

The  new  investor  should  bear  in  mind  that  a  superficial 
acquaintance  with  group  investments  does  not  warrant  nor 
justify  him  to  make  his  own  selections.  The  danger  in  this 
may  lie  in  the  fact  that  he  would  choose  them  in  much  the 
same  manner  as  he  does  his  luncheon  from  the  menu  card — 
according  to  his  fancy. 

Here  again  the  value  of  expert  services  is  demonstrated  to 
the  novice.  In  fact,  this  same  service  is  just  as  valuable  to 
the  "seasoned  investor,"  because,  with  very  few  exceptions, 

Page  Seventeen 


THE      PRINCIPLES      OF      PROFITABLE      INVESTING 

he  cannot  afford  to  give  enough  of  his  time  and  attention  to 
the  study  of  statistical  reports  and  analyses  to  insure  the 
most  profitable  selection. 

WHEN   TO    INVEST 

The  time  to  invest  is  today.  Tomorrow  never  comes. 
The  procrastinator  never  arrives.  The  all  important  thing  is 
the  start.  A  person  may  pay  a  little  more  for  some  stocks 
today  than  he  might  perhaps  sixty  or  ninety  days  hence.  On 
the  other  hand,  he  might  be  able  to  buy  them  at  a  lower  figure 
now  than  later.  The  point  is,  if  you  wait  for  the  psychological 
moment,  as  you  see  it,  vou  will  not  even  recognize  it  until  it 
has  passed! 

WATCHING   THE    MARKET 

Just  to  illustrate:  Some  people  have  perfectly  good  inten- 
tions to  invest  in  securities.  They  have  been  watching  the 
market  reports  a  long  time  for  a  "favorable  opportunity." 
When  prices  go  up,  they  hesitate,  in  the  hope  that  some  "pet" 
stock  they  have  been  watching  will  go  down.  Steadily  rising 
prices  cool  their  ardour. 

Then  they  make  up  their  minds  to  wait  until  prices  drop. 
When  the  drop  does  come,  they  wait  until  a  lower  level  is 
reached.  As  the  stocks  are  steadily  declining,  they  hold  off 
for  fear  that  they  might  pay  too  much.  These  people  are  still 
waiting  for  a  "favorable  opportunity." 

Many  conditions  govern  the  price  of  securities.  Do  not 
try  to  master  this  end  of  the  business,  unless  you  are  going  to 

Page  Eighteen 


THE      PRINCIPLES      OF      PROFITABLE       INVESTING 

engage  in  it  for  a  livelihood.  Let  a  securities'  expert  give  you 
this  information. 

Trust  to  your  determination  to  become  an  investor.  Make 
up  your  mind  you  are  going  to  buy  as  many  securities  as  you 
can  easily  carry,  and  as  rapidly  as  you  can  afford;  then  let 
nothing  side  track  you. 

Be  an  investor — even  if  you  have  to  start  in  a  small  way 
with  one  share  of  stock  or  a  single  bond.  You  will  then  have 
made  a  start, — then  "carry  on." 

LOOK   TO   THE    EXPERT 

The  question  of  what  kind  of  bonds  and  stocks  to  buy  is 
best  left  with  the  expert  investment  broker.  His  judgment 
will  be  reliable.  He  will  be  honest  and  fair,  because  the  house 
with  which  you  open  an  account  is  looking  forward  to  future 
business.  And  future  dealings  with  you  will  depend  on  the 
way  you  are  treated.  This  treatment  consists  in  the  interest 
shown  you,  business  courtesies  extended,  selection  of  securi- 
ties, and  service  rendered. 


Page  Nineteen 


CHAPTER  VI 

DIFFERENT  KINDS  OF  SECURITIES 

THERE  ARE  SEVERAL  kinds  of  securities.  Unless  a 
person  has  made  a  careful  study  of  them,  and  has  first 
hand  and  reliable  information,  it  is  highly  desirable  that 
he  look  to  the  specialist  in  this  field.  For  example:  A  cor- 
poration may  have  various  kinds  of  bonds  outstanding — 
First  Mortgage,  Second  Mortgage,  First  Consolidated  Mort- 
gage, Prior  Lien  Bonds,  etc.,  etc. 

SAFETY   IN    KNOWLEDGE 

Not  having  all  the  facts,  you  naturally  select  the  First 
Mortgage  Bond,  thinking  it  is  in  reality  a  first  mortgage  on 
the  property  of  the  corporation,  when  actually  it  is  not,  for 
the  reason  that  the  holders  of  the  First  Mortgage  Bonds  have 
waived  their  rights  to  first  lien  in  order  that  the  company  or 
corporation  might  borrow  more  money  with  which  to  make 
extensions  or  other  needed  improvements. 

This,  then,  gives  the  Prior  Lien  bonds  a  first  lien.  They 
must  be  paid  before  the  First  Mortgage  bonds  can  be  taken 
up.  Sometimes  a  situation  of  this  kind  adversely  affects  the 
value  and  worth  of  the  First  Mortgage  bonds. 

Then  again,  some  people  are  attracted  by  listed  stocks 
that  are  quite  active  and  good  dividend-payers.  Some  tem- 
porary favorable  condition  may  govern  this,  and  with  which 


THE      PRINCIPLES      OF      PROFITABLE       INVESTING 

the  purchaser  may  not  be  familiar.  A  serious  slump  might 
follow  from  which  the  stock  could  not  recover  for  perhaps 
some  time.  There  might  even  be  assessments  made  against 
the  stock. 

These  two  examples  point  their  own  moral,  which  is:  "If 
you  don't  know,  ask;  find  out!" 

LISTED   AND    UNLISTED    INSECURITIES 

A  listed  security  can  be  traded  in  on  the  recognized  Stock 
and  Curb  Exchanges  by  the  members.  Quotations  of  prices 
and  sales  will  be  published  by  the  Exchanges.  The  company 
or  corporation  issuing  the  security  must  first  comply  with 
certain  laws  and  regulations  in  order  that  their  security  may 
be  listed  and  be  widely  traded  in. 

Then  again,  there  are  hundreds  of  inactive  listed  securities. 
This  list  is  too  large  to  be  published  in  the  daily  papers,  and 
can  be  seen  only  at  the  office  of  some  broker.  The  value  of 
these  only  an  expert  knows  because  he  makes  it  his  business 
to  find  out  by  studying  reports  and  statistics. 

a  "bull"  market 

There  may  be  a  "bull  market."  This  is  for  the  purpose 
of  focusing  attention  to  a  particular  stock  or  security,  while 
the  price  is  being  run  up  out  of  all  proportion  to  its  real  value. 

This  is  done  with  the  sole  intention  on  the  part  of  those 
identified  with  the  movement  to  unload  at  a  big  profit.  The 
man  on  the  outside  who  does  not  know  the  real  facts  behind 
it.  He  buys  the  stock  "because  it  looks  good."  There  are 
thousands  of  these  victims. 

Page  Twenty-one 


THE      PRINCIPLES      OF      PROFITABLE       INVESTING 

A  "bear"  MARKET 

On  the  other  hand,  there  may  be  a  "bear"  movement  on. 
Certain  people  may  be  interested  in  forcing  down  the  price  on 
a  stock  for  the  sole  purpose  of  buying  it  in  at  the  low  price. 
The  uninitiated  only  knows  that  the  price  is  going  lower  and 
lower.  He  may  own  some  of  the  stock  and  become  panicky. 
Then  he  sells  at  a  loss  and  thinks  himself  lucky  to  get  out  as 
quickly  as  he  did. 

With  a  prospective  investor,  this  stock  may  have  been  a 
"pet."  He  may  have  been  watching  it  for  a  long  time  and 
just  about  have  made  up  his  mind  to  buy,  but  the  sudden 
and  continued  decline  in  selling  price  scared  him  out. 

Thus,  both  class  of  traders  have  accomplished  their  pur- 
pose. One  caused  you  to  buy.  The  other  forced  you  to  sell, 
or  prevented  you  from  buying.  Again,  the  same  warning: 
"If  you  don't  know,  ask;  find  out!" 

BUYING    BY    "RULE    o'    THUMB "    METHODS 

When  an  investor  makes  up  his  mind  to  buy  securities, 
more  often  than  not,  he  makes  his  own  selection,  then  gives 
his  order  to  a  stock  exchange  firm  for  its  broker  to  execute. 
If  he  guesses  right,  it  is  profitable.  If  he  has  made  a  poor 
guess,  he  stands  to  lose  money. 

Makers  of  investments  of  this  kind  have  no  redress,  either 
moral  or  legal.  The  broker  merely  acted  as  his  agent.  He 
executed  a  definite  order.  If  it  turned  out  to  be  a  total  loss, 
the  broker  was  in  no  way  at  fault. 

Page  Twenty-two 


THE      PRINCIPLES      OF      PROFITABLE      INVESTING 
A  MORAL   OBLIGATION 

On  the  other  hand,  should  the  investor  go  to  a  reliable 
firm  and  ask  it  to  recommend  a  good  security,  this  firm  is 
willing  to  assume  a  certain  amount  of  moral  liability  in  the 
matter;  and  in  view  of  the  fact  that  future  dealings  are  sought 
from  you  by  this  firm,  it  will  give  you  the  benefit  of  its  first 
hand  knowledge  and  keen  judgment  in  making  the  selection. 

From  this  the  reader  can  see  that  an  essential  safeguard  is 
enjoyed  by  the  investor  when  he  goes  to  a  firm  employing 
statistical  experts  for  the  purpose  of  protecting  their  customers 
in  so  far  as  possible.  It  is  to  the  interest  of  the  securities' 
house  to  do  this.  And  what  is  more,  a  service  of  this  kind  is 
impartial.     It  is  backed  by  seasoned  judgment. 


OBJECTIONS   TO    UNLISTED    SECURITIES 

There  are  many  unlisted  securities  traded  in,  a  great 
number  of  which  are  excellent  investments,  but  about  which 
the  average  person  knows  nothing. 

Actively  traded  in  listed  securities  are  easy  to  buy  and 
easy  to  sell,  while  unlisted  securities  are  often  times  hard  to 
buy  and  difficult  to  sell  quickly.  And  the  important  factor 
then  arises:  Is  the  security  bought  on  a  speculative  basis, 
with  a  good  margin  of  safety  and  quick  sale  ?  Or,  is  it  a  per- 
manent investment? 

These  are  problems  that  can  best  be  solved  for  you  by  the 
investment  house. 

Page  Twenty-three 


THE      PRINCIPLES      OF      PROFITABLE       INVESTING 
DIFFERENCE    BETWEEN    STOCKS   AND    BONDS 

A  bond  is  an  obligation — a  debt  contracted  and  assumed 
by  a  company  or  corporation.  This  obligation  must  be  met 
at  a  specified  time  by  the  payment  of  both  principal  and 
interest  in  full,  or  the  corporation  issuing  it  will  be  subject  to 
foreclosure  to  satisfy  the  debt. 

Because  of  this,  all  good  listed  or  unlisted  bonds  approach- 
ing maturity  usually  sell  at  or  very  near  par.  They  do  not, 
as  a  rule,  sell  much  above  their  par  value  at  maturity,  for  an 
investor  disposing  of  the  bond  at  that  time  would  lose  the 
premium.  Neither  is  a  good  bond  sold  much  below  par,  for 
the  owner  knows  that  by  holding  it  until  maturity,  he  will 
get  full  value. 

The  longer  the  time  a  bond  has  to  run  before  maturity,  the 
greater  may  be  the  premium  which  the  purchaser  has  to  pay; 
or,  the  greater  the  discount  at  which  it  can  be  bought.  By 
the  same  token,  the  nearer  to  maturity,  the  larger  the  premium 
or  the  bigger  the  discount. 

Factors  governing  these  conditions  are  a  part  of  the 
knowledge  or  stock  in  trade  of  the  investment  house. 


''age  Twenty-four 


CHAPTER  VII 

BONDS— WHAT  THEY  ARE— VARIOUS  KINDS 

A  BOND  IS  a  certificate  of  indebtedness — an  obligation 
assumed  by  the  corporation  that  has  borrowed  a  large 
sum  of  money  with  which  to  make   improvements, 
extensions,  or  to  conduct  its  business. 

Bonds  are  of  various  denominations,  the  sum  total  of 
which  is  the  amount  or  money  borrowed.  Mortgage  bonds 
are  those  secured  by  a  note,  which  in  turn  is  secured  by  a 
mortgage  on  the  property  of  the  borrower. 

Bonds  are  issued  by  the  government,  municipality,  cor- 
poration, or  other  properly  constituted  body,  and  have  a 
specified  time  to  run.  When  this  date  expires,  the  bond  must 
be  taken  up  by  the  corporation  issuing  it. 

BONDHOLDER   A    CREDITOR 

Bonds  usually  bear  interest  of  a  given  rate.  The  holder 
of  a  bond  is  a  creditor.  He  has  loaned  money  to  the  corpora- 
tion, and  is  in  the  same  position  as  any  other  money  lender. 
Naturally,  he  expects  payment  of  principal  and  interest,  when 
due. 

CLASSES    OF    BONDS 

First  Mortgage  Bonds  are  secured  by  a  first  lien  on  the 
property  of  the  borrower. 

Page  Twenty-five 


THE      PRINCIPLES      OF      PROFITABLE      INVESTING 

Second  Mortgage  Bonds  are  secured  by  a  second  lien  on 
the  property  of  the  borrower. 

First  Consolidated  Mortgage  Bonds  are  secured  by  a  first 
and  second  mortgage  on  the  property,  and  are  issued  for  the 
purpose  of  redeeming  First  and  Second  Mortgage  Bonds. 

General  Mortgage  Bonds  are  subject  to  existing  mort- 
gages. 

Prior  Lien  Bonds  can  be  issued  only  with  the  consent  of 
all  persons  holding  bonds  of  any  other  issue.  Bonds  of  this 
type  usually  run  for  a  short  time  only.  These  bonds,  as  the 
name  implies,  are  a  prior  lien,  and  must  be  taken  care  of 
before  older  bonds  can  be  paid. 

Convertible  Bonds.  Bonds  of  this  nature  give  the  holder 
the  privilege  of  exchanging  them,  within  a  certain  length  of 
time,  for  bonds  running  for  a  longer  time  or  earning  a  different 
rate ;  or,  may  be  exchanged  for  a  certain  number  of  shares  of 
stock  in  the  company. 

Extended  Bonds  are  an  extension  of  existing  bonds.  This 
is  a  renewal  of  the  obligation  by  the  borrower,  and  is  usually 
done  to  avoid  paying  a  higher  rate  of  interest. 

Equipment  Bonds  are  secured  by  new  equipment  pur- 
chased by  the  corporation. 

Terminal  Bonds  are  issued  by  railroad  corporations  for  the 
purpose  of  building  a  new  passenger  station  in  some  city. 
Such  bonds  are  secured  by  the  land  and  buildings  erected 
upon  it  at  such  terminal. 

Land  Grant  Bonds  are  issued  by  railroad  corpDratiom 
for  the  purpose  of  making  an  extension  of  the  road,  and 

Page  Twenty-six 


THE      PRINCIPLES      OF      PROFITABLE       INVESTING 

are   secured   by    such    extension    and    lands    adjoining    it. 

Refunding  Bonds  represent  a  general  mortgage  on  the 
entire  property,  and  are  issued  for  the  purpose  of  consolidating 
all  bond  issues  into  one  issue.  These  bonds  are  either  ex- 
changed for  the  various  other  bonds  then  outstanding,  or  the 
funds  from  their  sale  are  employed  to  take  up  existing  bonds 
when  due.  By  this  operation,  the  Refunding  Bonds  event- 
ually become  First  Mortgage  Bonds. 

Debenture  Bonds  have  back  of  them  unsecured  notes. 
Their  value  depends  entirely  upon  the  financial  strength  of  the 
corporation  issuing  them. 

Collateral  Trust  Bonds  are  issued  by  corporations  for  the 
purpose  of  acquiring  other  properties.  To  issue  this  type  of 
bond,  the  corporation  buys  the  stock  of  the  company  it 
desires  to  control,  then  deposits  this  stock  with  a  trust  com- 
pany and  issues  notes  "payable  to  bearer"  in  coupon  form. 
The  only  security  of  Collateral  Trust  Bonds  is  the  stock  held 
in  trust. 

Joint  Bonds  represent  the  equal  equity  owned  by  two  cor- 
porations of  stock  in  a  third  company.  These  bonds  are  the 
same  as  Collateral  Trust  Bonds,  except  that  they  are  secured 
by  notes  signed  by  both  corporations  having  bought  the  stock. 

Guaranteed  Bonds.  Where  two  corporations  buy  the 
stock  of  a  third  company  and  it  is  necessary  to  borrow  money 
for  this  (the  third)  company,  the  parent  company  assumes 
financial  responsibility. 

Assumed  Bonds  are  those  of  the  third  company  which  is 
an  obligation  assumed  by  the  parent  company. 

Page  Twenty-seven 


THE      PRINCIPLES      OF      PROFITABLE       INVESTING 

From  the  foregoing,  it  will  be  seen  that  the  terms,  "First 
Mortgage,"  "Second  Mortgage,"  etc.,  may  be  misleading. 
Especially  is  this  true  in  the  case  of  Prior  Lien  Bonds,  for  the 
latter  are  actually  first  lien  bonds  and  must  be  taken  up  before 
any  other  bond  can  be  paid. 

Therefore,  the  purchase  of  bonds  requires  an  intimate 
knowledge  of  the  bond  under  consideration.  In  fact,  buying 
bonds  is  much  the  same  as  buying  a  piece  of  real  estate.  You 
want  to  be  sure  your  title  is  clear.  For  this  reason,  it  is 
highly  advisable  to  accept  the  judgment  of  an  expert. 


Page  Twenty-eight 


CHAPTER  VIII 

STOCKS— THE  DIFFERENT  KINDS— PRIVILEGES 
AND  LIABILITIES  OF  STOCKHOLDERS 

A  STOCK  IS  THE  capital  represented  by  a  certain  num- 
ber of  shares  of  the  corporate  company.     It  also  rep- 
resents a  given  number  of  shares  of  the  company  which 
are  the  assets  or  funds  employed  by  the  company  to  conduct 
its  business. 

KINDS    OF    STOCK 

There  are  two  kinds  of  stock — preferred  and  common. 
Preferred  stock  is  that  part  of  stock  of  a  corporation  that  has 
a  preferred  or  prior  claim  on  dividends.  Bonds  and  floating 
indebtedness,  however,  have  a  claim  on  property  and  earnings 
ahead  of  preferred  stock. 

The  dividend  rate  of  preferred  stock  usually  is  a  fixed  or 
flat  rate  and  cannot  be  increased. 

Common  stock  is  the  stock  of  a  corporation  on  which  a 
dividend  is  paid  only  after  the  requirements  of  bonds,  floating 
indebtedness  and  preferred  stock  have  been  met. 

When  these  obligations  have  been  taken  care  of,  the 
remaining  sum  set  aside  for  dividend  purposes  is  divided 
pro  rata  among  the  common  stock.  For  this  reason,  the 
common  stock  has  no  set  rate  of  earning. 

Page  Twenty-nin* 


THE      PRINCIPLES      OF      PROFITABLE       INVESTING 

Because  of  no  fixed  rate  or  earning  capacity,  common 
stock,  as  a  rule,  is  a  bigger  dividend-payer  than  preferred 
stock.  The  same  rule  that  applies  to  listed  and  unlisted 
bonds  regarding  their  value  and  market  features,  apply  to 
stocks. 

One  thing  to  remember  is  that  many  stocks  and  bonds  are 
listed  by  small  or  obscure  exchanges,  and  in  many  instances, 
securities  of  this  kind  are  about  as  difficult  to  sell  as  the 
unlisted  kind. 

VALUE    OF    NON-DIVIDEND-PAYING    STOCKS 

It  frequently  happens  that  stocks  not  paying  dividends 
today  may  be  a  good  investment  in  the  near  future  by  virtue 
of  being  put  on  a  dividend-paying  basis. 

The  outsider,  naturally,  knows  little  or  nothing  of  this. 
Here  again,  is  where  the  services  of  trained  counsel  is  valuable, 
for  by  acting  on  the  sound  advice  of  "inside  knowledge"  of  a 
disinterested  party — knowledge  based  on  facts — a  person  very 
often  is  enabled  to  own  stocks  at  a  price  much  less  than  it  will 
actually  command  when  placed  on  a  dividend-paying  basis. 

A  person  owning  good  non-dividend-paying  stock  can  use 
it  as  collateral  in  buying  stock  that  does  pay  dividends.  This 
is  one  of  the  niceties  of  the  securities'  business  that  can  best 
be  illustrated  and  explained  by  a  reliable  securities'  house. 

stockholders'  privileges 
A  man  owning  stock  in  a  company  is  a  partner  in  the 
business  to  the  extent  of  his  holdings.     This  ownership  gives 
to  him  certain  rights,  provided  he  is  a  stockholder  of  record. 

Paye   Thirty 


THE      PRINCIPLES      OF      PROFITABLE       INVESTING 

By  this  is  meant  that  his  name  and  the  number  of  shares 
he  holds  are  registered  on  the  books  of  the  company. 
Some  of  the  stockholders'  rights  are : 

STOCKHOLDERS'    CONTROL   MANAGEMENT 

He  has  one  vote  for  each  share  of  stock  standing  in  his 
name  on  the  company's  books  for  the  selection  of  directors. 

Notice  of  the  approaching  election  is  mailed  to  him  by  the 
secretary  of  the  company. 

Usually  a  stockholder  also  has  the  right  of  voting  on  the 
question  of  increase  in  capital  stock;  on  the  reduction  in  the 
capital  stock;  on  proposed  changes  in  the  charter-powers  of 
the  corporation. 

Frequently,  he  has  the  right  to  vote  on  the  making  or 
changing  of  the  by-laws;  also  changes  in  the  number  of 
directors. 

He  has  the  right  to  attend  all  meetings  of  the  stockholders. 

He  has  the  right  to  object  to  waste  or  extravagance,  to 
incompetent  or  dishonest  management,  and  to  any  attempt 
to  engage  in  a  business  not  authorized  by  the  charter. 

He  may  vote  in  person  or  by  proxy.  The  proxy  can  be 
canceled  and  a  new  one  given  to  another  person,  provided  it 
is  done  before  the  meeting. 

stockholders'  extra  profits 
It   sometimes  happens  that  the   directors  of  industrial, 
mining  and  oil  companies  give  their  stockholders  the  valuable 
privilege  of  buying  new  or  additional  stock  issues  at  less  than 

Paat  Thirty-one 


THE   PRINCIPLES   OF   PROFITABLE   INVESTING 

the  then  market  prices.  The  value  of  this  should  be  apparent 
to  stockholders,  even  though  they  may  not  care  to  increase 
their  holdings. 

When  an  opportunity  of  this  kind  presents  itself,  the 
stockholder  can  avail  himself  of  the  extra  profits  by  buying 
the  amount  of  such  stock  as  his  holdings  permit,  and  then  sell 
an  equal  number  at  the  prevailing  market  price,  or  whenever 
the  market  seems  most  favorable. 

By  doing  this  he  still  has  his  original  number  of  shares, 
and  a  profit  which  is  represented  by  the  difference  between 
what  he  paid  for  the  new  issue,  and  the  figure  at  which  he  sold. 
Or,  he  may  sell  his  privilege  or  right  to  subscribe  to  the  new 
stock. 

The  fact  that  stocks  are  listed  and  are  actively  traded  in 
on  the  New  York  Stock  Exchange  or  Curb  Market  is  not  con- 
clusive proof  of  their  value  or  safety.  Large  sums  have  been 
lost  through  the  purchase  of  cheap  listed  stocks,  even  in  our 
large  railroad  and  industrial  corporations. 

STOCK   ASSESSMENT 

Sometimes  assessments  are  made.  If  the  owner  of  assessed 
stock  pays  his  share,  it  may  be  a  case  of  sending  a  new  dollar 
to  save  an  old  one;  or  it  may  only  result  in  "sending  good 
money  after  bad." 

Failure  to  pay  the  assessment  may  stand  the  owner  a  total 
loss.  Then  again,  by  paying  the  assessment,  the  stockholder 
stands  a  chance  to  make  a  handsome  profit. 

Page   Thirty  two 


THE      PRINCIPLES      OF      PROFITABLE       INVESTING 
STOCKS   THAT   ARE    DANGEROUS    TO    BUY 

Too  much  stress  cannot  be  laid  on  the  fact  that  no  stock 
should  be  bought  until  the  intending  purchaser  has  full  infor- 
mation warranting  making  the  investment  because  of  its 
soundness. 

Many  stocks  listed  on  the  New  York  Stock  Exchange  are 
of  little  or  no  value,  yet  none  of  these  is  issued  or  advertised 
in  a  fraudulent  way  or  by  misrepresentation.  Quite  a  number 
of  large  corporations  have  stocks  listed  on  the  New  York 
Stock  Exchange,  and  which  sell  around  310  to  #20  a  share, 
with  a  par  value  of  #100. 

Many  such  stocks  are  not  worth  more  than  their  market 
price;  nevertheless,  they  may  be  of  even  greater  value  because 
of  their  voting  power,  and  by  the  further  fact  that  they  might 
carry  with  them  the  control  of  a  great  industry. 

These  are  facts  the  securities'  expert  can  acquaint  you 
with,  because  acquiring  such  knowledge  is  a  part  of  his  business. 

Listed,  inactive  stocks,  particularly  those  of  new  com- 
panies, when  widely  advertised,  and  at  a  low  price  per  share, 
possess  only  a  very  remote  potential  value.  Even  buying 
these  stocks  outright  often  times  is  a  greater  gamble  than 
buying  stocks  on  margin. 

A    GOOD    RULE    TO    FOLLOW 

The  best  rule  to  follow  in  buying  unlisted,  inactive  stocks 
is  to  avoid  them  entirely,  unless  the  corporation  issuing  them 
is  a  growing  and  going  concern  with  good  future  possibilities 
of  making  the  stock  a  real  dividend-payer. 

Page  Thirty-three 


CHAPTER  IX 

PUBLIC  UTILITIES'  SECURITIES 

THE  VALUE  of  stocks  and  bonds  of  electric  railways,  gas 
and  electric  light  corporations  depends  on  two  important 
factors,   and  which  should  be  very  carefully   scanned. 
They  are: 

1 — Eranchise  and  property  value. 
2 — Earnings  and  management. 
The  record  of  earnings  of  street  railway  corporations,  on 
the  whole,  is  quite  favorable.     Those  of  interurban  lines  built 
in   competition  with  steam  railroads,   are   not  satisfactory, 
except,  possibly,  in  rare  instances. 

FRANCHISE    AND    REPLACEMENT    VALUE 

In  the  case  of  street  railways,  the  value  of  the  securities 
depends  very  much  on  franchise  and  replacement  value.  That 
is  to  say,  if  the  franchise  is  satisfactory;  if  the  corporation 
enjoys  a  reasonable  degree  of  public  confidence;  if  the  replace- 
ment value  is  sufficient  to  cover  the  securities  that  are  under 
consideration,  and  at  all  events,  enough  to  cover  all  fixed 
interest-bearing  securities. 

Earnings  must  be  satisfactory.  The  management  of  the 
properties  must  enjoy  public  confidence  and  good  will. 

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THE      PRINCIPLES      OF      PROFITABLE       INVESTING 

The  interurban  electric  railway  has  no  natural  monopoly, 
as  has  the  street  railway.  In  addition  to  this,  its  earning- 
power  is  more  or  less  in  jeopardy  because  of  the  possibility  of 
additional  competition  by  the  construction  of  another  electric 
line  through  its  territory. 

Securities  of  interurban  lines,  by  virtue  of  these  facts,  must 
be  very  closely  scanned.  Not  only  should  the  franchise  and 
replacement  values  be  carefully  studied,  but  the  earnings  and 
management,  together  with  the  bearing  of  future  unfavorable 
conditions  most  likely  to  arise. 

Altogether,  securities  of  this  nature  require  analysis  by  an 
expert.     In  fact,  the  wisdom  of  a  Solomon  is  here  needed. 

LIGHTING    SECURITIES 

Contrary  to  the  accepted  belief,  securities  of  gas  and 
electric  light  corporations  will  be  governed  in  the  future  by 
the  use  of  gas  and  electricity  for  cooking  and  heating,  rather 
than  for  their  original  purpose — lighting. 

To  illustrate:  The  apex  of  earning-power  of  these  cor- 
porations from  lighting  seems  to  have  been  reached,  as  every 
home  in  each  community  is  now  using  either  gas  or  electricity 
lor  illuminating  purposes. 

What  the  earning-capacity  of  their  product  will  be  in  the 
future  from  heating  and  cooking  will  depend  in  a  large  measure 
upon  the  competition  by  coal  and  the  fireless  cooker. 

This  really  resolves  itself  into  a  matter  of  domestic  econ- 
omy, and  its  application  by  the  future  housewife.  Therefore, 
the  result  is  quite  doubtful. 

Page  Thirty-five 


THE      PRINCIPLES      OF      PROFITABLE       INVESTING 

New  inventions  enabling  the  housewife  to  use  gas  and 
electricity  more  generally,  and  likewise,  more  economically, 
and  with  more  satisfactory  results,  would  tend  to  insure  con- 
tinued prosperity  for  these  corporations. 

TELEPHONE    SECURITIES 

Having  discussed  securities  of  street  and  interurban  rail- 
ways, and  gas  and  electric  light  companies,  it  is  now  pertinent 
to  consider  telephone  securities.  The  following  table  offers 
much  food  for  thought,  as  it  gives  the  annual  charges  per 
capita  in  the  United  States: 

Steam  Railroads   ....       320.00 

Street  Railways 8.50 

Gas 3.50 

Electric  Light      .....       2.60 

Telephone 1-75 

What  is  meant  by  the  above  table  is  that  for  every  £20 
spent  on  railroad  fares  and  freight,  there  is  spent  only  $1.75 
on  telephoning. 

As  a  matter  of  personal  economy,  curtailment  would  first 
be  made  in  travel,  as  here  a  greater  sum  is  involved,  rather 
than  in  telephoning,  the  amount  of  which  is  so  small  that  it  is 
seldom  considered. 

An  interesting  fact  in  this  connection  has  been  brought  to 
light  by  the  chief  executive  of  the  American  Telephone  & 
Telegraph  Company,  and  that  is  this :     The  effect  of  a  business 

Page  Thirty-six 


THE       PRINCIPLES      OF      PROFITABLE       INVESTING 

depression  is  not  felt  in  the  telephone  industry.  On  the  con- 
trary, during  such  periods  there  has  been  a  steady  increase  in 
earnings. 

Tables  prepared  by  this  corporation  show  that  telephone 
earnings  are  the  most  stable  of  any  class  of  public  service  cor- 
porations. Therefore,  the  securities,  with  few  exceptions, 
should  prove  a  better  investment  than  those  of  public  service 
corporations  in  other  fields. 

One  fact  in  this  connection  should  be  borne  in  mind,  viz. : 
Competition  in  the  telephone  business  is  much  worse  than  in 
other  lines  on  account  of  the  low  cost  of  construction  of  com- 
petitive companies. 

This  is  overcome  to  a  great  extent  by  the  reason  that  the 
two-phone  idea  never  was  popular.  It  doubles  the  cost  to 
the  merchant  having  to  install  the  extra  phone.  It  is  also 
difficult  to  introduce  the  new  service  in  homes  on  account  of 
the  natural  limitation  in  the  use  of  the  telephone. 

TELEPHONE    SECURITIES 

The  same  principles  involved  in  measuring  street  railway 
and  lighting  securities  applies  to  those  of  the  telephone. 

Some  telephone  companies  have  a  franchise  more  after  the 
style  of  steam  roads.  Some  companies  have  a  franchise  that 
will  expire  at  a  given  date.  Then  again,  some  companies  are 
subject,  more  or  less,  to  municipal  regulation. 

The  replacement  value  of  a  telephone  company  should  far 
exceed  the  bonded  indebtedness,  owing  to  the  great  deprecia- 
tion involved  in  telephone  plants.     Because  of  this,  conserva- 

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THE       PRINCIPLES      OF      PROFITABLE       INVESTING 

tive  investors  consider  telephone  .bonds  only  in  companies 
where  the  bonded  debt  is  not  more  than  half  the  cost  of  the 
property. 

Under  honest  and  able  management,  and  where  there  is  no 
competition,  a  telephone  company  should  pay  a  fair  return  on 
the  amount  invested. 

SECURING    RELIABLE    INFORMATION 

The  average  investor  does  not  possess  sufficient  technical 
knowledge  to  justify  him  passing  on  the  value  of  telephone 
securities;  and  for  such  information,  it  is  necessary  to  depend 
on  a  reliable  source  of  information— the  securities'  house. 


'age  Thirty-eight 


CHAPTER  X 

WATER  POWER  SECURITIES— MUNICIPAL 
SECURITIES 

AS  WATER  POWER,  seemingly,  is  to  replace  coal,  it  is 
well  to  give  this  type  of  security  some  considerations 
and  while  present  possibilities  may  not  be  alluring,  as 
a  whole,  the  future  importance  of  this  kind  of  power  may  make 
it  a  very  desirable  form  of  investment. 

COAL    SUPPLY 

The  decrease  in  the  world's  supply  of  coal  is  well  known. 
Eastern  mines  are  being  depleted;  and  while  development  of 
the  coal  mining  industry  in  the  west  is  going  on  at  a  rapid 
rate,  the  long  freight  hauls  and  greater  cost  of  operating  adds 
considerably  to  its  consumer  cost.  This  situation  would  seem 
to  favor  water  power. 

COST    OF    WATER    HORSE    POWER    LESS 

Because  of  this,  water  power  development  is  receiving 
much  favorable  attention.  Naturally,  this  kind  of  power  has 
its  restrictions  or  limitations  on  account  of  geographical  loca- 
tion. However,  the  cost  per  horse  power  is  much  less  than 
from  coal,  and  the  cost  of  the  former  should  decrease  until  the 
plant  is  producing  its  maximum  output. 

Page   Thirty-nine 


THE      PRINCIPLES      OF      PROFITABLE       INVESTING 

This  favorable  condition  is  due  to  the  fact  that  the  cost 
of  operation  is  much  less,  and  the  total  interest  on  the  invest- 
ment is  a  fixed  amount. 

IMPROVEMENTS    IN    STEAM    POWER    PLANTS 

On  the  other  hand,  it  should  be  borne  in  mind  that  great 
improvements  have  been  made  in  boilers,  steam  engines  and 
electric  generators,  as  well  as  in  design  of  power  stations,  dis- 
tributing lines  and  apparatus  by  which  the  consumer  utilizes 
electric  power. 

Therefore,  while  the  cost  of  coal  has  steadily  advanced, 
the  cost  of  producing  power  has  been  greatly  reduced.  Just 
how  long  this  condition  will  exist,  is  difficult  to  say. 

The  cost  of  constructing  a  water  power  plant  and  building 
long  transmission  lines  by  which  to  conduct  power  to  market 
is  more  than  that  for  a  steam  plant. 

ELEMENTS    OF    SAFETY 

By  the  time  the  greater  interest  charges  on  the  investment, 
upkeep,  etc.,  are  deducted,  it  will  be  found  that  the  margin 
of  profit  is  not  as  large  as  is  popularly  supposed;  and  because 
of  this,  the  five  elements  of  safety  in  water  power  securities 
should  receive  careful  study.     They  are: 

1 — Water  power  rights,  including  flowage,  lands,  etc. 

2 — Primary  twenty-four  power  capacity. 

3 — Flow  volume  of  stream. 

4 — Character  of  construction. 

5 — Profitable  market. 

Page  Forty 


THE       PRINCIPLES      O  F      PROFITABLE       INVESTING 

These  elements  of  safety  require  exhaustive  study  to  intel- 
ligently determine  security  valuation;  and  on  account  of  the 
broad  scope  and  complexity  of  these  elements  of  safety,  it  is 
highly  advisable  not  to  trust  to  your  own  deductions  in  the 
matter. 

MUNICIPAL    SECURITIES 

Municipal  securities  are  corporate  bonds,  as  every  munici- 
pality derives  its  corporate  authority  from  a  charter  issued  by 
the  state  of  which  it  is  a  part. 

These  securities,  as  a  class,  should  be  quite  desirable  on 
account  of  the  generally  great  element  of  safety  behind  them; 
yet  this  is  not  literally  true  in  every  instance. 

Buyers  of  municipal  bonds  should  use  great  caution  on 
account  of  the  loopholes  that  sometimes  make  this  form  of 
security  undesirable,  either  as  an  investment  or  as  a  specu- 
lation. 

SPECIAL    ASSESSMENT    BONDS 

Special  assessment  bonds  are  not  in  the  strict  sense  muni- 
cipal bonds,  and  are  issued  for  the  purpose  of  making  improve- 
ments along  property.  Sometimes  the  property  is  actually 
worth  less  than  the  cost  of  the  improvement,  and  the  increased 
valuation  of  the  property  by  virtue  of  the  improvement  may 
not  equal  the  cost  of  such  improvement. 

Because  of  this  possibility,  it  is  desirable  to  depend  on  the 
security  specialist  to  supply  all  the  facts  in  the  matter. 

Page  Forty-one 


CHAPTER  XI 

KEEPING  GOOD  INVESTMENTS 

THE  ELEMENT  of  risk  is  a  part  of  human  existence. 
Man  daily  runs  the  risk  of  accident,  sickness,  death. 
The  laborer's  job  is  a  risk ;  he  may  lose  it.  The  employee's 
position  is  a  risk;  he  might  be  suddenly  thrown  out  of 
work.  The  business  or  professional  man  immediately  assumes 
the  risk  of  failure  when  he  tries  to  turn  his  knowledge  into 
money,  because  of  lack  of  trade  or  enough  funds  to  tide  him 
over  the  starting  period. 

The  corporation  assumes  a  risk  when  it  starts  in  business; 
it  may  have  a  prosperous  period,  then  adversity  may  ruin  it. 
The  bank  assumes  a  risk  when  it  opens  its  doors  for  business; 
an  employee  may  turn  out  to  be  dishonest;  bad  investments 
may  be  made;  poorly  secured  loans  may  cause  a  loss. 

Therefore,  as  this  element  of  risk  is  ever  present,  it  is 
necessary  to  be  cautious  at  all  times  in  order  to  reduce  risk 
to  a  minimum. 

Now  then,  a  person  buying  a  high  grade,  listed  security 
rightly  feels  that  his  money  is  perfectly  safe,  yet  the  element 
of  risk  enters  the  moment  the  investment  is  made. 

The  future,  itself,  is  a  risk.  The  world  war  is  an  example 
of  how  stability  is  wrecked ;  how  business  is  adversely  affected ; 
how  social  unrest  paralyzes  fields  of  production. 

Page  Forty  two 


THE      PRINCIPLES      OF      PROFITABLE       INVESTING 

The  prosperous  investor,  then,  should  not  permit  the 
"element  of  risk"  from  carrying  out  a  scientifically  correct 
policy  of  savings.  And  much  to  his  credit,  it  can  be  said  that 
the  new  investor  is  more  conscious  of  the  risk  involved  than 
the  "seasoned  investor." 

CAREFUL   JUDGMENT    REQUIRED 

By  this  it  is  meant  that  the  regular  investor  is  apt  to 
ignore  the  thought  that  there  can  be  any  risk  in  high  class 
securities  which  he  buys.  Disaster  very  often  follows  such  a 
state  of  mind,  for  if  on  account  of  some  unforeseen  condition, 
interest  is  defaulted  on  a  security  he  holds,  he  naturally 
becomes  uneasy.  Then  when  a  depression  in  the  market 
price  of  the  security  follows,  he  may  grow  panicky.  Too 
often,  then,  he  is  in  a  mental  state  that  causes  him  financial 
loss,  either  through  sale  of  the  security,  or  trading  it  for  some 
stock  that  is  of  doubtful  value. 

JUSTIFIABLE    SELLING 

Sometimes  it  happens  that  a  stock  is  bought  at  a  low 
figure,  and  later  temporary  favorable  conditions  may  cause 
an  unusual  rise  in  the  market  price.  The  wise  thing  to  do 
then,  is  to  take  advantage  of  the  enhanced  value.  Sell  the 
stock  and  re-invest  the  proceeds  in  some  other  well  recom- 
mended security. 

This  is  one  of  the  several  ways  by  which  the  investor 
makes  his  money  produce  the  greatest  returns.  The  same 
plan  can  be  followed  when  stocks  are  bought  at  a  low -price 

Page  Forty-three 


THE      PRINCIPLES      OF      PROFITABLE       INVESTING 

and  gain  a  high  market  value  through  growth  of  business  that 
may  continue  for  a  few  years,  then  fall  off  again. 

When  such  a  policy  is  adopted,  it  is  urgently  necessary 
that  competent  advice  be  had  on  each  new  investment. 
Otherwise,  the  investor  might  be  tempted  to  depend  on  the 
dangerous  custom  of  trying  to  guess  right. 

EXCHANGING    GOOD    DOLLARS    FOR    BAD 

The  investor  should  never  turn  a  listening  ear  to  advice 
from  a  stock  salesman  selling  a  stock  in  which  he  or  his  firm 
is  particularly  interested,  as  the  most  worthless  securities  can 
be  presented  in  a  very  attractive  light.  And  while  the 
potential  possibilities  may  be  very  alluring,  the  management 
of  the  concern  may  be  incompetent  or  dishonest,  or  sufficient 
stock  may  never  be  sold  to  properly  finance  the  company. 

STOPPING    PAYMENT    OF    DIVIDENDS 

The  bare  fact  that  a  company  stops  paying  dividends  is 
meaningless,  in  itself.  It  does  not  follow  that  the  value  of 
the  stock  has  been  impaired  by  such  action.  On  the  con- 
trary, it  might  be  done  for  the  purpose  of  diverting  the  profits 
to  improvements,  extensions,  or  for  additional  working  capital. 

Certainly,  no  objection  could  be  found  to  such  action  by 
the  board  of  directors,  as  this  very  act  would  have  a  tendency 
to  strengthen  the  value  of  the  stock. 

EXTRA    PROFIT    ON    BONDS 

During  periods  of  business  distress,  some  bonds  may  be 
quoted  considerably  below  their  regular  market  price,  and  the 

Page  Forty-four 


THE      PRINCIPLES      OF      PROFITABLE       INVESTING 

investor  knowing  this,  and  taking  advantage  of  it,  can  make 
an  additional  profit  by  purchasing  them  at  the  low  price. 
This  profit  may  be  equal  to  two  or  more  per  cent,  so  that 
what  was  a  regular  four  and  one-half  per  cent  investment, 
may  turn  out  to  be  earning  from  six  to  eight  per  cent. 

DEFAULTED    BONDS 

In  the  event  that  there  is  a  default  in  the  interest  on 
bonds,  it  is  well  to  go  to  your  security  house  for  proper  advice 
in  the  matter.  Doing  this  may  be  the  means  of  saving  money, 
either  by  retaining  the  securities,  or  selling  them  at  the  market 
price. 


Page  Forty-fix 


CHAPTER  XII 

MINING  AND  OIL  SECURITIES 

THE  GROUP  investment  proves  itself  most  practicable 
and  commonsense  in  mining  and  oil  stocks,  for  to  buy 
one  or  two  mining  or  oil  stocks,  except  in  a  few  instances, 
is  pure  speculation— not  investment. 

Promotion  stocks  should  rarely,  if  ever,  be  considered 
and  if  they  are,  the  investigation  should  prove  most  conclu- 
sively that  honesty,  integrity  and  ability  are  behind  the  stock. 

MINING    STOCKS 

The  mining  stocks  may  be  divided  into  three  groups,  as 
follows : 

1 — Producers  and  dividend-payers. 
2 — Producers  and  non-dividend  payers. 
3 — Developments. 
4 — -Prospects. 
Stocks  belonging  to  group  one  are  established  mines  under 
successful  operation,  and  are  making  sufficient  profit  so  that 
dividends  are  paid. 

Mining  stocks  in  group  two  are  established  properties,  but 
not  sufficiently  developed  or  are  not  yet  producing  enough 
metal,  or  producing  it  cheap  enough  to  conduct  business  at 
a  profit;  or  to  warrant  paying  dividends.     It  may  happen  that 

Page  Forty-six 


THE       PRINCIPLES      OF      PROFITABLE       INVESTING 

companies  in  this  group  actually  earn  a  profit,  but  the  surplus 
earnings  is  employed  for  extra  working  capital.  Such  prop- 
erties ultimately  should  pay  dividends. 

Mining  stocks  in  group  three  are  those  that  have  good 
producing  properties,  and  are  ably  managed,  but  not  suffi- 
ciently opened  for  actual  production.  This  may  be  due  to 
the  fact  that  shipping  facilities  are  at  present  unsatisfactory, 
waiting  for  the  completion  of  the  smelter,  etc. 

Mining  stocks  in  group  four  usually  consist  of  land,  owned 
outright  or  leased,  yet  in  many  instances  development  work 
has  been  done.  However,  buying  stocks  in  this  group  is  just 
plain  gambling. 

OIL    STOCKS 

Oil  stocks  should  be  divided  into  three  groups,  viz.: 

1 — Investment. 
2— Speculative. 
3 — Gambling. 

Those  in  the  first  group  are  dividend-payers;  those  in  the 
second  group  are  producers  not  yet  having  arrived  at  the 
dividend-paying  stage;  while  those  in  group  three  are  "paper 
companies."  They  may  develop  into  real  producing  com- 
panies, but  the  chances  are  very  much  against  it. 

Blue  sky  laws  in  many  states  prohibit  the  sale  of  promo- 
tion stocks,  yet  in  spite  of  this,  people  will  continue  to  buy 
this  worthless  kind  of  stock. 

Page  Forty-seven 


CHAPTER  XIII 


THE  KRIEBEL  SYSTEMATIC  SAVING  PLAN 

WE   HAVE    MADE   a   careful   survey   of  the    "small 
investor  field."     We  realize  the  potential  possibilities 
of  investors  of  moderate  means.     We  appreciate  the 
need  for  encouragement  and  assistance  among  this  class  of 
investors. 

HELPING   THE    SMALL    INVESTOR 

And  because  of  this,  we  have  placed  at  the  command  of 
the  small  investor,  the  same  highly  specialized  information 
hitherto  only  accessible  and  useful  to  the  man  of  considerable 
means. 

Now  then,  by  virtue  of  this  policy,  the  man  who  has  Five 
Dollars  a  month  to  invest  is  on  the  same  sound  footing  as  he 
who  has  One  Hundred  Dollars  a  month  to  invest. 

KRIEBEL    SYSTEMATIC    SAVING    PLAN 

The  Kriebel  Systematic  Saving  Plan  is  scientifically  cor- 
rect. It  is  fundamentally  sound.  All  elements  of  chance  are 
eliminated.  There  is  no  temptation  to  gamble.  The  funds 
are  as  safe  as  money  can  possibly  be  when  invested  in  recog- 
nized high  grade  securities. 

Page  Forty-eight 


THE       PRINCIPLES      OF      PROFITABLE       INVESTING 

The  Kriebel  Plan  is  for  the  regular  investor,  as  well  as  for 
those  who  heretofore  have  had  to  content  themselves  with 
the  three  or  four  per  cent  interest  allowed  by  savings  institu- 
tions. It  enables  a  person  to  buy  a  single  share,  or  several 
shares,  depending  on  how  much  can  be  invested. 

The  Kriebel  Systematic  Saving  Plan  suggests  a  two-fold 
earning-capacity  of  the  sum  invested — growth  of  value  and 
interest  or  dividend-paying  rate. 

THE    PLAN    IN    OPERATION 

Investment  under  the  Kriebel  Systematic  Saving  Plan  is 
limited  to  stocks  and  bonds  recognized  and  quoted  on  legiti- 
mate markets.  In  contracting  to  buy  only  active  securities, 
the  purchaser  is  enabled  to  realize  cash  at  any  time. 

And  when  buying  securities  under  this  plan,  only  twenty 
per  cent  of  the  total  purchase  price  is  required  as  down- 
payment.  The  balance  of  the  eighty  per  cent  is  taken  care  of 
in  twenty  equal  monthly  payments. 

We  make  no  commission,  brokerage,  interest,  carrying- 
charge,  or  other  similar  charge.  Our  only  fee  is  for  service 
rendered  and  to  be  rendered.  This  is  six  per  cent  on  the 
unpaid  balance,  for  the  twenty-month  payment  period,  after 
the  initial  payment  of  twenty  per  cent  has  been  made.  As 
this  balance  is  divided  into  twenty  equal  monthly  payments, 
it  equals  one-half  per  cent  a  month,  or  at  the  rate  of  six  per 
cent  a  year  on  the  eighty  per  cent  due  when  the  order  is 
accepted. 

The   Kriebel   Systematic   Saving   Plan   is  time-tried   and 

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THE      PRINCIPLES      OF      PROFITABLE       INVESTING 

tested.  Every  element  of  danger  that  sound  banking  prin- 
ciples has  been  able  to  avoid  or  circumvent,  has  been  elim- 
inated. His  money  is  just  as  safe  as  is  that  of  the  man  who 
invests  thousands  of  dollars.  It  is  invested  with  the  same 
studied  care.  His  profits  are  just  as  certain.  Both  have  the 
same  protection.  The  small  investor  can  buy,  on  time  pay- 
ments, the  same  high  grade  securities  that  a  bank  purchases 
for  cash. 

SAFEGUARDING    THE    INVESTOR 

The  Kriebel  Systematic  Saving  Plan  is  recognized  in  con- 
servative banking  circles  as  being  financially  sound.  It  is 
basically  and  scientifically  correct.  It  removes  investing  from 
the  sphere  of  gambling  or  chance.  All  speculative  features 
have  been  eliminated. 

STANDS    CLOSEST    INVESTIGATION 

This  plan  will  withstand  the  closest  investigation.  The 
closer  it  is  investigated,  the  better  will  it  be  appreciated,  and 
the  more  wide-spread  will  its  adoption  be. 

The  Kriebel  Systematic  Saving  Plan  appeals  to  the  wage- 
earner,  the  salaried  employee,  and  to  the  man  of  means.  It 
is  the  one  safe  plan  for  those  who  believe  in  the  maxim, 
"Savings  are  valuable  only  in  proportion  to  their  earning- 
capacity." 

By  this  plan,  a  person  is  enabled  to  invest  in  as  little  as 
one  bond  or  one  share  of  stock.  The  small  investor  receives 
the  same  careful  consideration  as  does  the  large  investor.     His 

Page  Fifty 


THE      PRINCIPLES      OF      PROFITABLE       INVESTING 

savings  are  just  as  carefully  guarded.  His  requirements  are 
just  as  fully  met  and  supplied. 

In  carrying  out  the  Kriebel  Systematic  Saving  Plan,  added 
value  is  given  to  it  by  the  entire  absence  of  personal  financial 
interest  in  any  particular  security.  Only  high  grade  listed 
securities  having  a  known  value  and  ready  market  are  dealt  in. 

It  is  a  service  that  makes  friends  out  of  customers,  and 
assures  an  ever  increasing  clientele. 

THE    PLAN    DESCRIBED 

High  grade  securities  dealt  in  on  recognized  financial 
markets  may  be  purchased  under  the  Kriebel  Systematic 
Saving  Plan  upon  making  a  down  payment  of  only  twenty 
per  cent  of  the  total  purchase  price.  The  initial  payment 
must  accompany  a  written  order  to  buy.  There  remains, 
then,  a  balance  of  eighty  per  cent  of  the  contracted  purchase 
price,  and  the  obligation  is  taken  care  of  by  equal  payments 
covering  a  period  of  twenty  months. 

This  plan  permits  any  one  to  buy  such  an  amount  as  can 
be  easily  handled.  In  this  way,  the  buyer  will  not  make 
saving  a  hardship.  Rather,  it  will  make  for  economy,  fru- 
gality, thrift— success.  He  is  assuming  a  financial  obligation 
that  will  develop  into  a  valuable  asset. 


Page  Fifty-one 


CHAPTER  XIV 

OTHER  GOOD  FEATURES  OF  THE  KRIEBEL 
SYSTEMATIC  SAVING  PLAN 

THE  KRIEBEL  Systematic  Saving  Plan  insures  against 
margin  calls.     Gambling,  chance  or  speculation  is  elim- 
inated.    The  securities  contracted  for  are  actually  deliv- 
ered when  full  payment  under  the  contract  has  been  made. 

ACCOUNTS    PROTECTED 

Defaulting  in  payment  does  not  jeopardize  the  money 
already  invested,  for  the  reason  that  under  no  consideration 
will  the  account  be  put  on  a  margin  basis.  Should  a  customer 
be  unable  to  meet  further  payments,  his  account  will  be 
closed  (as  per  agreement  in  his  contract).  His  securities  then 
are  sold,  and  the  entire  equity,  plus  any  accrued  earnings, 
mailed  to  him  without  delay. 

The  value  of  this  will  be  better  appreciated  when  it  is 
understood  that  under  the  Kriebel  Systematic  Saving  Plan, 
purchases  are  limited  to  securities  having  an  active  market, 
so  that  the  client  may  realize  his  cash  whenever  he  pleases. 

When  the  down-payment  of  twenty  per  cent  has  been 
made,  we  issue  our  "Investment  Certificate"  to  the  pur- 
chaser.    This  shows  that  he  has  an  equity  in  the  securities 

Page  Fifty-two 


THE      PRINCIPLES      OF      PROFITABLE       INVESTING 

contracted  for,  and  which  are  subject  to  immediate  delivery 
upon  completing  his  contract.  The  Certificate  also  insures 
faithful  performance  on  our  part  of  the  contract. 

The  Certificate  represents  securities  actually  contracted 
for.  It  states  the  name  of  each  security;  whether  it  is  a  bond 
or  a  stock;  the  total  number,  and  the  market  value  at  time 
of  purchase. 

This  Certificate  also  states  the  total  amount  of  money  to 
be  paid.  Each  clause  in  the  contract  is  clear  and  easy  to 
understand,  and  to  make  it  in  full  force  and  effect,  it  is  dated, 
signed  and  countersigned  before  delivery  to  the  customer. 

THE    COUPON    FEATURE 

An  important  feature  is  the  Coupon  arrangement.  By 
this  system,  the  Certificate  holder  can  always  tell  at  a  glance 
just  what  date  each  installment  falls  due,  and  the  amount  to 
be  paid.  This  acts  as  a  check  against  oversight  or  forgetful- 
ness,  as  each  payment  as  made  must  be  accompanied  by  the 
coupon  corresponding  with  the  date  of  payment. 

KRIEBEL    SERVICE 

We  maintain  a  Service  Department  to  assist  clients  in 
making  sound  and  profitable  investments.  This  service  con- 
sists of  our  regular  monthly  publication,  INVESTMENT, 
our  library  of  valuable  handbooks  on  investing,  and  detailed 
replies  from  our  complete  statistical  department  to  all  requests 
for  information. 

Page  Fifty-three 


THE      PRINCIPLES      OF      PROFITABLE       INVESTING 

Our  Service  Department  issues  reports  only  after  most 
thorough  investigation.  The  department  is  guided  solely  by 
facts  and  figures — actual  performance  and  potential  possibili- 
ties of  the  securities  in  question.  It  is,  therefore,  reliable  and 
authentic. 

This  department  clearly  analyzes  conditions,  suggests 
various  profitable  investments,  and  shows  those  best  to  be 
avoided  as  unprofitable. 

THE    PROTECTION 

This  service  is  of  great  importance  and  value  to  large  and 
small  investors.  It  is  particularly  valuable  to  the  man  or 
woman  entering  the  investment  field;  and  while  it  cannot 
absolutely  guarantee  against  loss,  it  does  protect  and  insure 
against  unwise  investment. 

To  the  buyer  of  securities,  our  Service  Department  per- 
forms an  important  function.  Especially  is  this  true  when 
applied  to  the  new  or  untrained  investor.  Furthermore,  as  a 
rule,  the  greatest  gains  are  made  in  securities  which  are  bought 
before  their  profit-possibilities  are  demonstrated.  These  are 
facts  brought  to  light  by  this  department. 


Page  Fifty-four 


CHAPTER  XV 

CARE  IN  ADVISING  CLIENTS 

NO  CHARGE  is  made  to  our  clients  for  Kriebel  Service, 
and  it  is  our  established  policy  (except  where  specific 
orders  are  given)  to  always  advise  clients  against  what 
in  our  opinion  are  considered  hazardous  and  unsafe  invest- 
ments. 

This  service  gives  to  the  prospective  purchaser  free  access 
to  the  honest,  unbiased  opinions  and  seasoned  judgment  of 
specialists  skilled  in  the  selection  of  sound,  high  grade  securities 
such  as  we  ourselves  would  buy. 

The  constant  aim  and  purpose  of  the  Kriebel  Systematic 
Saving  Plan  is  to  discourage  any  thought  or  idea  of  specula- 
tion. This  is  done  by  placing  the  buying  of  securities  on  a 
sound  basis,  and  entirely  eliminating  every  feature  which 
might  tend  to  cause  a  loss  to  the  investor. 

OPTION    OF   TERMINATING    CONTRACT 

The  "Investment  Certificate"  or  contract  of  the  purchaser 
clearly  states  that  when  payments  have  not^been  defaulted, 
the  client  enjoys  the  right  and  privilege  of  terminating  his 

Page  Fifty-five 


THE       PRINCIPLES      OF      PROFITABLE       INVESTING 

contract  at  any  time,  and  withdrawing  the  entire  value  of  his 
investment,  together  with  any  profits  which  may  have  been 
earned  by  the  securities. 

The  client  also  has  the  option  of  selling  any  part,  or  all, 
of  his  holdings,  before  payments  have  been  completed.  This 
sometimes  is  a  distinct  advantage  in  the  face  of  a  temporary 
rising  market. 

To  be  able  to  buy  sound  securities  on  deferred  payments, 
such  as  is  offered  under  the  Kriebel  Systematic  Saving  Plan, 
is  a  revelation  to  the  man  who  wants  to  become  an  investor. 
It  opens  to  him  a  vast  field  which  heretofore  has  been  denied 
to  him. 

SECURITIES    AS    COLLATERAL 

Sound  securities  may  be  used  as  collateral  for  the  first  or 
down  payment.  When  this  is  desired,  a  list  and  the  denom- 
inations of  the  securities  should  be  supplied  us.  Then  we  will 
advise  whether  or  not  they  are  acceptable;  and  if  they  are, 
at  what  value. 

MONTHLY    PAYMENTS    ILLUSTRATED 

To  aid  in  deciding  how  much  in  securities  to  buy,  the 
following  table  has  been  so  computed  as  to  show  what  certain 

Page  Fifty-six 


THE      PRINCIPLES      OF      PROFITABLE       INVESTING 

monthly  payments  require  as  initial  payments,  and  how  much 
in  securities  such  monthly  payment  will  buy. 


20  Monthly 

Require  Initial 

Securities  to 

Paymenl 

:s  of 

Payment  of  20% 

the  Value  of 

£  5.00  per 

month 

$  22.73 

$  113.65 

10.00    " 

u 

45.47 

227.35 

11.00    " 

u 

50.01 

250.05 

15.00    " 

a 

68.18 

340.90 

20.00    " 

a 

90.92 

454.60 

22.00    " 

a 

100.00 

500.00 

25.00    " 

u 

113.64 

568.20 

30.00    " 

u 

136.39 

681.94 

33.00    " 

u 

150.00 

740.00 

40.00    " 

a 

181.84 

909.20 

44.00    " 

a 

200.00 

1,000.00 

50.00    " 

a 

227.30 

1,136.50 

75.00    " 

a 

340.91 

1,704.55 

100.00    " 

u 

454.56 

2,272.80 

DIVIDEND    RETURNS 

Prompt  and  full  remittance  is  made  to  the  client  from  our 
office  during  the  contract-period  of  all  earnings,  interest, 
special  dividends  and  bonuses  from  the  companies  whose 
securities  the  client  has  contracted  to  buy.  These  payments 
are  made  by  us  by  check,  or  will  be  applied  as  credits  on  the 
unpaid  balance,  at  the  option  of  the  client. 

When  payments  for  the  securities  have  been  completed, 
full  title  then  passes  to  the  purchaser.  The  securities  then 
shall  be  promptly  delivered  to  him,  registered  in  his  name. 

Page  Fifty-seven 


THE   PRINCIPLES   OF   PROFITABLE   INVESTING 

All  future  dividends  and  other  earnings  after  that  will  be 
mailed  direct  from  the  companies  they  represent. 

PAYMENTS    NOT    LIMITED 

At  no  time  is  the  client  restricted  to  the  minimum  pay- 
ment specified  in  his  purchase  agreement.  He  may  make  a 
larger  first  payment,  or  larger  monthly  payments.  Or,  he 
may,  at  any  time,  pay  the  entire  balance  due  and  receive  the 
certificates  in  his  own  name. 

PROFITABLE    INVESTMENT 

Bonds,  as  a  general  rule,  vary  but  little  in  price  from  issue 
to  maturity.  Therefore,  the  buyer  has  a  limited  opportunity 
to  take  advantage  of  a  better  price  than  that  which  he  paid. 

Listed  dividend-paying  stocks  are  less  restricted.  Under 
the  Kriebel  Systematic  Saving  Plan,  the  investor  frequently 
is  enabled  to  terminate  his  contract  when  stocks  he  contracted 
to  buy  are  selling  at  unusually  attractive  prices.  In  this  way, 
he  can  realize  for  himself,  in  cash,  the  difference  between  the 
purchase  price  and  the  market  price  at  the  time  he  decides  to 
close  his  contract. 

WHEN    PAYMENTS   ARE    DUE 

All  payments  are  due  without  notice,  on  the  same  day  of 
each  month  following  purchase  as  the  day  upon  which  the 
first  payment  was  made,  until  full  payment  shall  have  been 
completed. 

Page  Fifty-eight 


THE      PRINCIPLES      OF      PROFITABLE       INVESTING 
STATEMENTS 

A  statement  showing  the  condition  of  the  account  is 
rendered  upon  request,  provided  only  that  such  demand  shall 
not  be  made  more  than  once  a  month. 

REMITTANCES 

Remit  by  check,  draft,  postal  or  express  order  or  currency. 
If  currency  is  sent,  the  letter  should  be  registered. 

SUMMARY   OF   ADVANTAGES 

Here  are  a  few  of  the  distinct  advantages  enjoyed  when 
purchasing  securities  under  the  Kriebel  Systematic  Saving 
Plan: 

Privilege,  at  any  time,  to  close  the  account  and  secure 
return  of  investment  and  accrued  profit. 

Participation  during  the  purchase  period  in  all  earnings, 
interest,  special  dividends  and  bonuses  of  the  companies 
whose  securities  the  purchaser  has  contracted  to  buy. 

Ability  of  the  purchaser  to  take  advantage  of  increased 
prices  to  realize  immediate  cash  profits. 

Absence  of  all  margin  requirements  and  absence  of  calls 
for  cash  to  protect  margin  purchases. 

Absolute  control  by  the  purchaser  of  his  investment  at  all 
times,  except  where  the  purchaser  fails  to  meet  payments 
when  due. 

Privilege  of  the  investor  to  avail  himself  of  the  advice  and 
counsel  of  the  Kriebel  Organization  in  buying  and  selling. 

Ability  to  purchase    interest-bearing  bonds  or  dividend- 

Page  Fifty-nine 


THE   PRINCIPLES   OF   PROFITABLE   INVESTING 

paying  stocks  at  any  time  without  being  required  to  pay  the 
whole  of  the  purchase  price  in  cash. 

The  small  investor  may  use  this  plan  as  a  savings  bank, 
making  payments  as  he  would  deposits,  receiving  more  for 
his  savings  than  the  three  or  four  per  cent  paid  by  the  savings 
bank. 

OFFERINGS 

From  time  to  time  lists  of  securities — -both  bonds  and 
first  grade  stocks — will  be  submitted  as  desirable  forms  of 
investment.  These  offerings  will  be  carefully  selected  as  to 
security,  interest  or  dividend  yield.  Our  recommendations 
for  their  purchase  will  indicate  that  these  securities  have  been 
exhaustively  studied,  and  that  they  may  be  invested  in  with 
a  sense  of  absolute  safety. 

SAFETY 

Utmost  care  in  the  selection  of  sound  investment  securities 
of  positive  intrinsic  value,  is  the  essence  of  the  Kriebel  System- 
atic Saving  Plan.  The  fact  that  the  purchaser  is  not  subject 
to  margin  calls,  makes  his  interests  identical  with  ours.  We 
must,  therefore,  reserve  the  right  of  refusing  to  accept  orders 
on  this  plan  for  securities,  which,  in  our  opinion,  are  too 
hazardous  for  safety. 


CHAPTER  XVI 

CREDIT— ITS  MEANING  AND  VALUE 

THE  four  essential  things  to  success  are: 
1— Health. 
2 — Character. 

3 — Intelligence  and  judgment. 
4— Credit. 
Having  all  four,  any  person  should  succeed.     Lacking  any 
one  of  them,  the  individual  is  greatly  handicapped. 

Health  comes  from  right  living— eating  good,  wholesome 
foods,  abstaining  from  excesses,  living  a  clean  life,  and  getting 
plenty  of  fresh  air  and  sunshine. 

Character  is  measured  by  the  normal  and  mental  qualities 
of  a  person.  It  is  dependent,  to  a  large  extent,  on  early 
training,  home  surroundings,  on  the  company  a  person  keeps, 
and  the  habits  he  forms. 

Intelligence  is  knowledge— ability  to  know.  It  is  quick- 
ness or  sharpness  of  intellect.  Judgment  is  the  faculty  of 
being  able  to  distinguish  wisely  between  two  opposite  courses; 
it  requires  knowledge  ajnd  experience. 

Without  confidence,  there  can  be  no  credit,  and  without 
credit,  we  would  be  confronted  with  an  appalling  business 
situation.     Credit  arises  out  of  esteem.      It  is  belief,,  trust, 

Page  Sixty-one 


THE       PRINCIPLES      OF      PROFITABLE       INVESTING 

faith  or  reliance,  or  confidence  in  or  upon  a  person  or 
thing.  Credit  is  the  basis  on  which  business  is  founded. 
It  is  necessary  to  the  government,  to  the  corporation,  to  the 
small  firm,  to  the  individual.  Once  it  is  lost,  confidence 
is  destroyed. 

VALUE  OF  TWO  BANK  ACCOUNTS 

Every  person  should  have  two  bank  accounts.  In  one 
bank  should  be  kept  the  savings;  in  the  other  bank,  the 
checking  account.  Depositing  money  in  both  banks  regu- 
larly establishes  an  acquaintance  which  may  prove  quite 
valuable  in  the  future. 

Banks  are  dependent  on  people,  and  people  are  dependent 
on  banks;  therefore,  the  better  and  more  friendly  your  rela- 
tions with  the  bank,  the  more  important  you  are  to  each 
other. 

A  checking  account  is  important  when  paying  bills.  It  is 
a  personal  safeguard;  it  shows  the  merchant  that  you  have  a 
bank  account,  and  helps  establish  a  credit  with  him.  A  bank 
account  also  enables  a  person  to  get  checks  cashed  quickly, 
remit  money,  give  references,  and  serves  many  other  purposes. 

A  savings  account  is  a  barometer.  It  indicates  the  degree 
of  thrift,  and  even  though  the  savings  account  is  small, 
regularly  adding  to  it  is  of  more  importance  than  spasmodic 
deposits  of  large  sums. 

STABILITY    OF    A    BANK 

To  the  average  reader,  a  bank  statement  is  meaningless. 
However,  the  bank  showing  the  greatest  margin  of  safety  is 

Page  Sixty-two 


THE      PRINCIPLES      OF      PROFITABLE       INVESTING 

the  one  to  do  business  with.  This  is  indicated  by  the  capital 
multiplied  by  two,  plus  surplus  and  undivided  profits.  This 
would  be  the  sum  a  bank  could  safely  pay  before  causing  a 
loss  to  its  depositors. 

The  bank  you  select  should  enjoy  the  confidence  of  the 
community.  One  indication  of  a  bank's  standing  in  this 
respect,  is  the  continuous  gain  in  deposits  without  having  to 
offer  any  special  inducement. 

BOOK    VALUE    OF    BANK    STOCKS 

Another  indication  of  a  bank's  standing  is  the  price  of  its 
stock.  Does  this  sell  at  around  its  book  value?  The  book 
value  is  arrived  at  by  the  combined  totals  of  its  capital, 
surplus  and  undivided  profits.  That  is  to  say,  if  the  capital 
is  3100,000,  the  surplus  350,000  and  the  undivided  profits 
35,000,  this  total  would  be  3155,000,  or  155%,  Therefore, 
the  book  value  of  the  stock  would  be  3155  per  share. 

SELECTING    YOUR    BANKS 

Before  selecting  your  banks,  make  enquiries.  Do  business 
with  banks  that  are  strong;  that  have  a  reputation  for  cheer- 
fulness; banks  that  appreciate  your  deposits  and  are  accom- 
modating. Be  just  as  careful  about  choosing  your  banks  as 
you  do  the  company  you  keep. 

CHARACTER    OF    OFFICIALS 

Cultivate  the  acquaintance  of  the  bank  officials.  Seek 
their  advice  on  financial  matters.     Learn  the  character,  habits 

Page  Sixty-three 


THE       PRINCIPLES      OF      PROFITABLE       INVESTING 

and  business  qualifications  of  these  men.  Make  enquiries. 
Learn  if  they  stand  for  the  highest  character  and  judgment. 
They  must  be  absolutely  honest  and  have  wide  experience  in 
financial  affairs. 

Safety  is  not  the  only  essential.  If  the  bank  is  operated 
by  men  who  loan  out  money  in  large  amounts  when  it  is 
cheap,  it  may  have  none  to  loan  during  a  financial  stringency. 
Such  a  bank  is  of  little  value  to  the  depositor,  as  it  has 
impaired  its  chief  worth  to  the  depositor — accommodation. 


If  the  reading  of  this  book  has  helped  you  to  a  clearer 
understanding  of  the  investment  problem — if  it  has  shown 
you  where  you  can  invest  your  capital  to  the  best  advantage — 
then  it  has  served  its  purpose  well.  It  is  our  sincere  desire 
to  do  business  with  you,  and  we  believe  the  Kriebel  Plan 
offers  you  more  advantages  than  any  other  form  of  invest- 
ment, but  even  if  you  do  not  invest  through  us,  if  'The 
Principles  of  Profitable  Investment"  has  aided  you  to  dis- 
criminate between  the  sound  and  the  unsound — between 
the  good  and  the  bad — we  will  profit  along  with  all  other 
reliable  investment  bankers. 

Kriebel  &  Co. 
137  South  La  Salle  Street, 
Chicago. 

Page  Sixi 


14  DAY  USE 

RETURN  TO  DESK  FROM  WH,CH  BORROWED 

LOAN  DEPT 

Renewed  books  are  subierr  ,„  ■  ! 
are  subject  to  immediate  recall. 


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